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How to make 100% in 1 year on a diamond's alternative stock

Charles & Colvard is a well-known jeweler specializing in moissanite, a more affordable alternative to traditional diamonds. It has garnered attention from microcap investors for its potential as a growth stock in the past. While it hasn't experienced the anticipated breakthrough and currently trades at multi-year lows, recent developments suggest that it might become an acquisition target. In May, the company received an acquisition offer, though it was rejected by the board. Additionally, a major shareholder with a 9.8% stake believes the company's private market value could range from $2.06 to $3.01 per share.

While there's some skepticism about the upside potential, given the historical stock price performance, the downside appears limited. The company's current stock price is at multi-year lows and trades at a discount to its book value. Debt is minimal, and the company holds significant net cash and inventory, including moissanite gems and jewelry. The company also demonstrated profitability before the onset of the COVID-19 pandemic, primarily due to improved gross margins. Although it's uncertain whether these profit levels will return post-COVID, the fact that a significant portion of its sales occur online provides some optimism. The company is presently trading at a 9x pre-COVID price-to-earnings ratio.

Recent developments include the rejected takeover bid from Digital Brands Group and management's share purchases in the open market. Silver Ring Partners, another major shareholder, has initiated an activism campaign, recommending the company pursue a sale process and return excess cash to shareholders. It has also asked for board representation.

Risks associated with the company include the possibility of the activism campaign failing, management prioritizing acquisitions over the core business, and a potential lack of demand recovery post-COVID. However, the company's low valuation and protected downside mitigate some of these risks.

In terms of the company's background, Charles & Colvard specializes in moissanite jewelry, known for being a cost-effective alternative to traditional diamonds. While it doesn't hold patents to moissanite development, it claims to have superior technology resulting in clearer and brighter products. It operates through two segments: online sales and traditional retail locations.

The company has had its share of financial ups and downs since its establishment in 1995. Notably, it reported six consecutive profitable quarters in mid-2019, and it raised $9 million to bolster its marketing efforts. However, the market response to fiscal Q2’20 results was less optimistic, and share prices declined. The company's performance was affected by declining loose jewelry sales but also benefited from increased sales of finished jewelry. The onset of COVID-19 further impacted the company, particularly with the closure of traditional retail points and decreased demand for moissanite. Despite these challenges, the management remains committed to growth, expansion, and potential acquisitions.

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